The paradoxes of risk management in the banking sector

Chu Yeong Lim, Margaret Woods, Christopher Humphrey and Jean Lin Seow

The British Accounting Review, 2017, vol. 49, issue 1, 75-90

Abstract: This paper uses empirical evidence to examine the operational dynamics and paradoxical nature of risk management systems in the banking sector. It demonstrates how a core paradox of market versus regulatory demands and an accompanying variety of performance, learning and belonging paradoxes underlie evident tensions in the interaction between front and back office staff in banks. Organisational responses to such paradoxes are found to range from passive to proactive, reflecting differing organisational, departmental and individual risk culture(s), and performance management systems. Nonetheless, a common feature of regulatory initiatives designed to secure a more structurally independent risk management function is that they have failed to rectify a critical imbalance of power - with the back office control functions continuing to be dominated by front office trading and investment functions. Ultimately, viewing the 'core' of risk management systems as a series of connected paradoxes rather than a set of assured, robust practices, requires a fundamental switch in emphasis away from a normative, standards-based approach to risk management to one which gives greater recognition to its behavioural dimensions.

Keywords: Risk management; Paradox theory; Power imbalance; Regulation; Behavioural; Three lines of defence (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:49:y:2017:i:1:p:75-90

DOI: 10.1016/j.bar.2016.09.002

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